The greater Tampa Bay area, which includes Tampa, St. Petersburg, and Clearwater, has consistently ranked as one of the top ten real estate markets over the past few years, making this rapidly expanding market a hot spot for commercial and residential real estate investors. This article will take a closer look at the local market while diving deep into several key metrics and neighborhoods to help you be a more informed investor in this area.
What makes Tampa special The city of Tampa originated as a cigar-centric city in the late 1800s and early 1900s, helping establish itself as an important trade port and financial hub for the state of Florida. Today, the region's idyllic winter weather, proximity to beautiful beaches and the bay of Tampa, lively culture, and diverse economy make it a popular place to call home. Tampa Bay's growing scene of restaurants, bars, theatre, music, art, and nightlife have made it a unique melting pot for all ages and a playground each winter for Northern snowbirds looking to escape the cold of winter. The greater Tampa Bay market encompasses three distinct cities -- Tampa, St. Petersburg, and Clearwater -- scattered across two counties, Hillsborough and Pinellas. Located on Tampa Bay and the Gulf of Mexico, Tampa is connected to mainland Florida through I-4, while St. Petersburg and Clearwater are connected to each other and Tampa through a series of bridges. Each city offers a variety of real estate investment opportunities from suburban residential neighborhoods, the revitalization of historic districts, or long-term residential and commercial rentals in high-density downtowns.
State of the market Thankfully, the Tampa market hasn't been as adversely affected as other major metro cities like New York City, San Francisco, or Seattle have. Its smaller population, general affordability, and spread-out geographic area means fewer residents are inclined to search elsewhere for housing despite continued shut downs from the pandemic. The state of Florida has also employed somewhat looser restrictions regarding the operation of businesses and laws relating to eviction moratoriums as compared to other states like New York or California, which has helped fuel recovery to some degree. With this being said, the great Tampa Bay area is certainly experiencing changes. Below are three of the most notable trends for the market today.
1. Low supply is pushing housing prices up Low housing supply is a concern across the nation. Lack of supply and historically low interest rates are driving home buyers to the market in droves. But Tampa's supply is even less than the national average. Right now, the greater Tampa market has a 1.1-month housing supply, which is seriously low considering a 4-5 month supply is considered balanced; this has driven median housing prices up 14.3% year over year. This, coupled with the general affordability of owning versus renting in the area, lends itself to higher demand for buyers than renters, making it a prime time to invest in residential, particularly as a real estate fix-and-flipper.
2. Rental rates are rising, but vacancies are still a concern Rent prices have increased 6.6% year over year, pushing the average rent price to $1,589, which would indicate high demand for rental housing. However, rental vacancy in the area is 7.7%, 1.2% higher than the national average, indicating there is an uneven supply and demand for certain rental areas within the marketplace. There is surely opportunity for long-term buy-and-hold investors in these marketplaces, but identifying the right neighborhoods are key for rental property success.
3. Mortgage delinquencies on the rise One notable change for the market is the increase in mortgage delinquencies. Right now, Tampa Bay's overall mortgage delinquency rate is 7.7%, which is 1.2% higher than the national average. Florida was one of the hardest-hit states during the Great Recession, where home prices fell dramatically and foreclosures and short sales went through the roof. Florida's large population and high percentage of homeowners puts them at risk for a greater number of delinquencies during economic recessions. Foreclosures are still down, but high mortgage delinquencies means there could be an uptick in demand, balancing out the market in the near future and providing opportunities for investors in the distressed marketplace. Tampa Bay housing demand indicators Charts courtesy of Housing Tides, an EnergyLogic company. There are several housing indicators that support the trends above. Take a closer look at each to see how the predictions and trends may play out in the future.
Data source: Housing Tides
Stable employment opportunities have been a large part of what makes the Tampa area an appealing investment market. While the global pandemic caused a sudden decrease in the number of employed and those currently on unemployment, the market seems to be on the positive trend back to more normalized levels. Right now, unemployment is at 5.2%, 1.5% less than the national average for the United States with 1.36 million residents currently employed. Tampa has managed to outpace the national unemployment rate steadily for the past five years.
Data source: Housing Tides
The median home price has increased dramatically over the past five years, climbing from $197,000 in June of 2016 to $271,000 today. The 14.3% home appreciation rate is slightly outpacing the five-year performance for the national average, although the median home price is still below the national home price of $330,000.
Data source: Housing Tides
The 6.6% year-over-year growth for rental rates indicates high demand for rental housing, but Tampa's slightly higher than average rental vacancy rate indicates there is some imbalance in the rental market. Rental rates still remain below national averages but continue to rise, putting long-term affordability in question. Tampa Bay housing supply indicators
Data source: Housing Tides
A 1.1-month supply of housing is low. Over the past five years, there have only been two dips into the normalized range of housing supply: 2016 and 2019. Since then, supply has only declined. With relative affordability for housing as it relates to income in the area, there is a greater demand for owning than renting, which has fueled a shortage of housing due to the inward migration of new residents making their way to the Tampa area.
Tampa's vacancy rate is consistently higher than the national average of the past five years. Rental vacancy rates have improved recently, but this is likely due to the continued eviction moratoriums, which restrict landlords from evicting tenants for nonpayment related to COVID-19.
Data source: Housing Tides
Construction costs are on the rise in the Tampa market, up 5.4% year over year. The lumber shortage spurred by the global pandemic has increased construction costs. But despite higher cost to build or renovate, new permits for single-family homes are at the highest point in five years, with 1,954 new permit requests in January of 2021.
Data source: Housing Tides
Multifamily permits are in a comfortable historical range for the market, with just 437 new permit requests as of January 2021.
Data source: Housing Tides
Data source: Housing Tides
It comes as no surprise that architectural billings, which is an economic indicator for nonresidential construction activity, has dropped dramatically since 2020. Commercial real estate has been hit hard by the global pandemic and investors are being very cautious about adding new supply to the market. The Tampa Bay area is one of the top destinations for conferences, which plays a large role in Florida tourism, and is a hub for many businesses -- something to watch carefully moving forward. Tampa Bay financial health indicators
Data source: Housing Tides
Housing affordability is a concern across the nation. While the Tampa market is slightly more affordable than other high-density and desirable cities across the country, both its price-to-income and rent-to-income ratios are reaching national-average levels. Residential mortgage delinquencies shot up in mid 2020 only to have recovered slightly, however still hovering around the 7.7% range, higher than the national average.
Data source: Housing Tides
Foreclosures, however, are down. Mortgage moratoriums providing protection against foreclosure of FHA-insured loans means many lenders and servicers are unable to initiate foreclosure at the present moment. However, once certain protections expire, it's likely the foreclosure start rate will increase in the near future. Anchor industries The Tampa market is supported by a variety of economies and industries largely because of location, having ample access to ship and receive goods from its international airport or port.
Military and Defense: St. Petersburg, Tampa, and Clearwater are home to several military bases, including the MacDill Air Force Base and Coast Guard Air Station in Clearwater, in addition to being home to several Raytheon, GE, and Lockheed facilities.
Tourism: Tourism continues to be a mainstay for the state. St. Petersburg and Clearwater have world-renowned beaches, driving visitors from all over the world, which in turn drives retail sales and business in the hotel and restaurant industry. The greater Tampa area is home to several famous tourist attractions, including the Gasparilla Pirate Fest, Busch Gardens, Salvador Dali Museum, Florida Aquarium, Florida Holocaust Museum, Lowry Park Zoo, and Weeki Wachee Springs State Park and has a budding food and brewery scene. It's estimated that Tampa's tourism brought in $6.9 billion in revenues in 2019. Financial & technology services: Many financial institutions and tech companies, including the cybersecurity sector, use Tampa Bay as their hub or headquarters in the South. TransferWise, Raymond James Financial (NYSE: RJF), and USAA all call Tampa home. In fact, 3.9% of all jobs in Tampa are in the tech industry, which falls in line with New York City, Pittsburgh, and Philadelphia. Cybersecurity, however, has become the top tech-driven business in the area. Manufacturing and Corporate Headquarters: Tampa is home to several large companies headquarters or manufacturing facilities, including Johnson & Johnson (NYSE: JNJ), Pfizer (NYSE: PFE), Coca-Cola Beverages (NYSE: KO), Honeywell International Inc. (NYSE: HON), General Electric Company (NYSE: GE), Bausch & Lomb (NYSE: BHC), and Suzuki Motor of America, Inc. Healthcare: The healthcare industry is an essential industry for the Tampa market, providing 67,000 jobs in the St. Petersburg and Clearwater markets, while the city of Tampa is home to over 20 hospitals, 22% of the state's pharmaceutical and medicine manufacturing workforce, and 14% of biotech companies for the state.
Schools of note The University of South Florida in Tampa is by far the largest university in the greater Tampa Bay area. With the main campus located in North Tampa and a tertiary campus in St. Petersburg's downtown, the university serves more than 50,000 students. Gulfport, a small city located next to St. Petersburg, is home to Stetson Law School, a rather prestigious law school that serves around 4,000 students annually. Additionally, there are two smaller private colleges, including the University of Tampa and Eckerd College, that serve under 12,000 students combined.
Neighborhoods of note When it comes to neighborhoods, there are several notable areas that have a lot of fix-and-flip activity, as well as high demand for residential sales and rental properties. Below are a few of the most up-and-coming or high-demand markets that show steady historical growth and demand.
Temple Terrace and University Square The neighborhoods of Temple Terrace and University Square capitalize on the need for student housing. Located by the University of South Florida, these neighborhoods are often affordable options for students to rent single-family or small multifamily homes (such as a duplex, triplex, or fourplex). University Square is becoming a hot spot for fix-and-flip investors and long-term landlords. With housing prices starting in the low $100's ranging to the low $200's once repaired, it's a prime price point for a solid return on investment as a rental. Temple Terrace has a mix of permanent residents and tenants, with homes starting in the low $100's to the high range of $400,000, making it an ideal location for fix-and-flip or long-term rentals. East Tampa Many of the neighborhoods surrounding Tampa's downtown are split between historically blighted neighborhoods currently undergoing redevelopment and revitalization (like Ybor, Seminole Heights, and Tampa Heights) or pricey neighborhoods (like Hyde Park or Old West Tampa) well established in prestige, demand, and amenities. There are few neighborhoods that fall in between these, but it seems East Tampa is the closest match. With still fairly low starting points for homes ranging from the low $100's to low $300's, and rents in the $1,400 - $1,600 range, investors can still find worthwhile opportunities. Investors also have the benefit of having slightly newer homes in comparison to the nearby neighborhoods, which means you don't have to deal with historical societies when it comes time to renovating.
Disston Heights There is only so much land on a peninsula. One of St. Petersburg's biggest struggles is utilizing land to meet housing needs. Many of the surrounding neighborhoods, including Kenwood and Old Northeast, have priced out most investors despite an increased demand for both fix-and-flips and rentals in those markets. However, nearby Disston Heights still remains off many investors' radars. It's still relatively close to much of St. Pete's trendy downtown and central district bars, shops, and restaurants without the high home prices. Home prices start in the low $200's, making their way into the low $400's, with rents running in the mid $1,500 - $1,900 range, making it a well-priced market to jump into.
Gulfport Gulfport is its own city, bordering St. Petersburg on one side and the gulf on the other. This eclectic and small city continues to hold reliable opportunities for investors because of its mix of residents. The city is home to several diverse mini neighborhoods with its own small historic downtown waterfront lined with bars, shops, and restaurants. Certain parts of the city lend itself more naturally to rental homes, particularly with the nearby Stetson Law School, while others are ideal for fix-and-flip opportunities since the city lends itself to both homeowners and tenants equally. The Millionacres bottom line As with many other real estate markets, investing in the greater Tampa Bay area can be a potentially lucrative move. It's simply a matter of understanding which neighborhoods, industries, and investment avenues present the best opportunities in the present moment. Economy and industry are thriving and it seems more and more businesses are driving demand to this area. However, its unique geographic makeup, particularly St. Petersburg and Clearwater, means land is in short supply, which will likely continue to drive real estate prices up as demand continues to flow in. Investors need to be mindful of these price variations as well as the supply and demand to ensure the market is in favor of their investment strategy.
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